Question

A corporation deposits $20 million in a money market account for 1 year. What will be the differ- ence in the total amount accumulated at the end of the year at 18% per year compounded monthly versus 18% per year simple interest

Answer 1

Answer:

Simple Interest=P*r*n= $20 million * 0.18 * 1=  $3.6 million

Therefore amount accumulated= $20 million + $3.6 million = $23.6 million

Amount accumulated through Compound Interest=P×(1+r)  ^t

 = $20 million( 1+0.18/12)^12= $23.912 million

Explanation:

Simple interest is based on the principal amount of a loan or deposit, while compound interest is based on the principal amount and the interest that accumulates on it in every period.